Govt not entitled to seek congratulations after IMF report

It is true that the reports from the IMF and the OECD are neither a ringing endorsement of the Government’s stewardship nor handy crib sheets for the Opposition to attack the Government. But the problem is that when the reports were published, particularly the IMF report, they were accompanied by the sort of press releases the Government issues at such times suggesting that they constitute a ringing endorsement of Government policy.

That was exactly what we got when the IMF report was published. In the Minister of State’s speech in the Seanad, he welcomed the opportunity to have this debate because it gives an opportunity to put on record the endorsement of the Government’s policies and the endorsement it provides for the action it is taking. It includes some endorsements of what the Government is doing but the extent to which we should fall to our knees and thank the Government for taking action in this unprecedented crisis is another matter. The Government is not entitled to come into this House and seek congratulations for doing the job it is paid by the people to do, for taking steps to turn around this crisis that is partly of their making.

I am adhering to the call for restraint in this debate by saying the crisis was only partly of the Government’s making but it was of its making to a considerable extent. This was pointed out in the IMF report, which the government is so quick to characterise as an endorsement of the Government’s position. The Minister asked that while we debate the IMF report, we refer to it, and I propose to do so. I do not intend to paraphrase the report at all but will quote directly from it lest I am accused, as others have been and as some have done, of spinning it.

I will talk about the future, because that is what we are all interested in, but we cannot look to the future unless we are honest about how we got to where we are. Senator MacSharry is a good colleague in this House who often uses the phrase: “We are where we are.” That covers a multitude. It is easy for a Minister or someone else to say it, but how did we get to where we are? This is part of the analysis required to see how we get away from where we are. In addition, it is not a matter of where we are in the sense of spreading the blame; it is about where the Government has brought us. We must reword that handy little catch-all phrase which is used mainly by Government spokespersons and apologists in an effort to dissuade us from considering how we got to the state we are in.

The IMF report states:

Dazzling growth and buoyant public revenues prompted tax reductions and expansion of public expenditures that have proved unsustainable. Various commentators and the IMF in its Article IV consultations did warn that the seemingly-unstoppable growth masked serious imbalances, including the fragility of public finances.

This is a direct quote and not an attempt to paraphrase or put a spin on anything. The report states that the IMF analysis “shows that after strong growth between 1987 and 2001, which earned Ireland the moniker of the ’Celtic Tiger,’ potential growth had steadily eroded”. Here, the IMF is telling the Government that growth had started to erode from 2001. This is the report the Government is so anxious to tell us constitutes an endorsement of its policies. The report goes on to state: “Analysis by OECD staff, consistent with the results from the Kalman-filtering approach, concludes that Ireland was perhaps the most overheated of all advanced economies.” I will not burden people with the detail of the Kalman filtering approach which is an econometric model. Again, these are the words of the IMF report itself.

While the report does say the Government is getting its act together and addressing the issues, as any sovereign government must, the Government cannot get away from the fact that it is seriously responsible for what has occurred. Senator Dan Boyle made a point during Seanad debates about local authorities and planning, with which I agree. However, it is not the case that my party, for example, never raised potential abuses and excesses. We drew attention to then repeatedly throughout the late 1990s and in the earlier part of this decade. We repeatedly introduced proposals, which the Government derided, both in this House and elsewhere, in an attempt to address the spiral of land speculation and rising house prices which we thought to be, and which turned out to be, unsustainable. We raised this repeatedly but the constant refrain was that we were getting in the way of progress. We were told this was what was always heard from the Labour Party because it was against progress, expansion and building.

Of course we need our construction industry and we need houses, but the excesses and abuses that went on were there for people to see. There were people, not just in my party but elsewhere, including in the Green Party, who pointed out these excesses and, in some cases, the corruption that was, unfortunately, going on. We can now see the effects of this. Such failings and breaches of the law are not victimless crimes, as we can now see with our own eyes.

The area in which there has been maximum spin with regard to the IMF report is that of banking and the National Asset Management Agency, NAMA. The Government is introducing the NAMA proposal and we are coming back in September to deal with it. It is important we all state that it is in everyone’s interest that the banking system is dealt with and that we get the right result. As politicians, we will argue about the means that are adopted and try to scrutinise as best we can the proposals introduced by the Government, but the outcome we all want for ourselves, for our children and for future generations is an economy that is working properly – which we clearly do not have at the moment – and a financial system that is functioning to give people loans and fund small businesses, households and so on. It is an absolute requirement in any economy and I want to see it restored. Anything I say or my party says, whether supportive or critical of the Government, is dedicated to that end.

We talk, for example, about a period of temporary nationalisation. It is a tactic of the Government that when it wants to criticise the Opposition it rephrases the Opposition’s policy and then criticises that. The Government has repeatedly criticised those who would call for wholesale nationalisation of the banks. The Minister of State was at it again in his speech in the Seanad, saying that some commentators – I do not know whether he mentioned the Labour Party – are calling for wholesale nationalisation of the banks. Who has called for wholesale nationalisation? My party has not called for that. It has been said, backed up by many independent commentators from the left to the right of the political spectrum, that there is a strong case to be made at this juncture for temporary nationalisation of the banks.

Let us not forget what we are talking about – the IMF report. What does the report actually say about this issue rather than what the Minister seems to want it to say? It has been invoked over and over by the Minister as being against nationalisation, which is not the case. The report talks about insolvent institutions and the approach of closing, merging or temporarily placing them in public ownership. It states:

There have been numerous instances (for example, Japan, Sweden and the United States), where a period of public ownership has been used to cleanse balance sheets and pave the way to sales back to the private sector.’ Having taken control of the bank, the shareholders would be fully diluted in the interest of protecting the taxpayer and thus preserving the political legitimacy of the initiative. The bad assets would still be carved out, but the thorny issue of purchase price would be less important, and the period of price discovery longer, since the transactions are between two government-owned entities. The management of the full range of bad assets would proceed under the NAMA structure. Nationalization could also be used to effect needed mergers in the absence of more far reaching resolution techniques.

That is a paragraph setting out a commentary on the usefulness of the nationalisation approach. The report continues, and I will quote it all in case I am being selective.

The authorities [that is, Ireland] prefer that banks stay partly in private ownership to provide continued market pricing of their underlying assets. They disagreed with the staff’s view.

In other words, the Irish Government disagreed with the IMF, which is what is meant by “staff”. There is nothing wrong what that. I disagree with elements of the report as well. Why can the Government not admit there is a disagreement between its approach to the issue and that taken by the IMF? It is fine to differ and the Government should not try to cover up the disagreement. The IMF report states:

They [the Irish authorities] disagreed with the staff’s view [the IMF staff] that pricing of bad assets would be any easier under nationalization. They were also concerned that nationalization may generate negative sentiment with implications for the operational integrity of the banks. Staff emphasised nationalization would need to be accompanied by a clear commitment to operate the banks in a transparent manner on a commercial basis. In particular, nationalized banks should be subject to the same capital requirements and supervisory oversight as non-nationalized banks. And, a clear exit strategy to return the banks to private operation would be needed.

Why are Ministers indicating in many public comments the position is otherwise?

In the months ahead we will need to debate the steps the Government has taken and will be required to take in the autumn. It is worth addressing the question of what the Opposition is required to do. The Minister of State at the Department of Finance, Deputy Martin Mansergh, who is frequently in the House for debates on the economy, addressed it a couple of weeks ago. I was entirely in agreement with his view.

Some people appear to believe the role of the Opposition is to produce a budget and a long list of proposed cuts before the Government does so. This is an entirely unrealistic and absurd view of the role of the Opposition. I fully accept, however, that the Opposition must act responsibly and cannot simply reject every item on the Government’s list of proposals for its budget. I also accept that the Government, having presented its proposals, is entitled to ask the Opposition what measures it would take if it were in Government. However, it is unrealistic at this stage of the budgetary cycle to ask Opposition parties, whether Fine Gael, the Labour Party or others, to produce a list of cutbacks in circumstances in which the Government is struggling to identify what it will do to secure savings of €4 billion or €5 billion.

More :: Click here to read the IMF Report on Ireland (PDF)